We came across a bullish thesis on Moody’s Corporation (MCO) on Substack by Quality Equities. In this article, we will summarize the bulls’ thesis on MCO. Moody’s Corporation (MCO)’s share was trading at $475.85 as of Jan 17th. MCO’s trailing and forward P/E were 43.50 and 35.34 respectively according to Yahoo Finance.
A hand holding a rating chart, emphasizing the importance of credit ratings in the financial services sector.
Moody’s is a prominent player in the credit ratings, financial research, and risk analysis sectors, recognized for its strong business model and impressive fundamentals. The company’s core function is to assist investors, businesses, and governments in assessing creditworthiness and managing financial risks. Moody’s operates in a natural duopoly with S&P Global, as the two companies provide ratings for 90% of the world’s debt, positioning them as key players in the global financial system.
Moody’s business is divided into two main segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA). MIS assigns credit ratings to debt instruments and issuers, while MA offers data, software, and advisory services focused on financial risk management. This dual-stream approach allows Moody’s to generate revenue through both subscription-based services and fees for its ratings and analytics. The diversified nature of these segments provides a buffer against cyclical fluctuations, ensuring a steady revenue stream even during downturns in the credit ratings market.
Despite its strong operational track record, Moody’s is currently trading at a 2.69% free cash flow yield (TTM), which, while reasonable, reflects the market’s expectations of continued growth. A reverse DCF analysis suggests the market is pricing in a 10-year free cash flow compound annual growth rate (CAGR) of 16.36%, indicating confidence in the company’s long-term growth potential. However, at its current valuation, Moody’s is considered somewhat expensive. As such, while the company remains a top-tier investment opportunity with substantial upside potential, investors may choose to wait for a more favorable entry point. For now, Moody’s continues to represent a strong candidate for future investment, with a disciplined approach recommended until the valuation becomes more attractive.
Moody’s Corporation (MCO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 67 hedge fund portfolios held MCO at the end of the third quarter which was 59 in the previous quarter. While we acknowledge the risk and potential of MCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.